Buy Low, Buy High, Buy Everywhere in Between

By Brendan Conway

Has the market has gotten too pricey? If you think so, take a look at the evidence from Jeffrey DeMaso of the Independent Adviser for Vanguard Investors. Timing — last year, this year, next year — means very little to the long-term investor.

For three decades, two investors put an annual $1,000 into Vanguard 500 Index (VFINX) starting in 1983. One of them is Disciplined Dave. Dave invests his money on the last trading day of each year. He doesn’t try to time the market. His result at the end of 2013, inclusive of the December ’13 contribution: Dave’s $31,000 in contributions is now $177,176, having compounded at a yearly rate of 9.9%.

The second investor is Hapless Harry. Harry wants to time his annual contribution, but he has “the worst timing in modern Wall Street history.” He invests his $1,000 at the market peak every single year. So in the short run his luck couldn’t have been worse. Result: Harry’s $31,000 turned into $169,153, compounding at an annual 9.5%.

Despite his poor timing Hapless Harry did have a few things going for him. Harry stuck to a regular investment plan. Even though every trade he made immediately lost money, Harry, like Dave, was disciplined and invested $1,000 every year. Harry also never panicked—he did not sell a single share. Finally, Harry had a long time-horizon.

The lesson is that timing isn’t everything. Spending time in the market, which means being disciplined, consistent and staying focused on the long run, goes a long way towards making up for unlucky timing. And in reality your luck can’t be as bad as Hapless Harry’s.

The lesson, then, is not to care if you’re a long-term investor. Further, if you’re hesitant for fear of entering at the market top and you’re not a retiree or terminally ill, then this makes you a speculator.

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MARCH 21, 2014 5:18 P.M.

Lance Cooke wrote:

The comparison is interesting to the extent that anyone able to make the contributions could decide to be a Disciplined Dave. But it doesn't really inform the reader of the full range of possible results. What fortune would Lucky Lisa have amassed by investing at the market low point in each and every year?

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.